Even factoring in a demand revival in subsequent quarters and a somewhat optimistic 25% growth, shows there is going to be degrowth in FY14E.

Year on year EPS growth for FY13E may be camouflaging the real picture! let's look beyond that. I would like to err on the conservative side, and wait for demand revival to be seen on the ground. Many things can go wrong. Large Quantum of Debt can make things worse. Her's a look at the ground situation so far in FY13

Q12013 (MT) | -18.91%---|---

Fresh positions are not advised at this stage. If there is significant exposure to BKT, that should certainly be reduced/exited. Small/Minimal exposure may not matter.

Hi Donald,

I have a small holding and not planning to exit.

can you foresee 3-5 years from now, where BKT will be? Do you have confidence that BKT will be able to maintain the margins and able to grow @10% in next few years?

can you foresee 3-5 years from now, where BKT will be? Do you have confidence that BKT will be able to maintain the margins and able to grow @10% in next few years?

Hi Prashant,

BKT has an excellent track record over the years and has a decent size and brand positioning of its own in Europe & US. Management has proven its excellence over many business cycles.

But that does not mean we should sit and be sanguine about its ability to ride through the present slowdown smoothly. The economic situation is its biggest markets US & Europe is grim and despite Management protests to the contrary, we have seen consistent slide downs in the first 3 quarters. Distributors have cleaned up all stocks, and Orderbook is no more being 'presented'.

The timing of the expansion completion makes it worse - slowing demand, unutilised capex, high fixed costs and depreciation costs, coupled with the high debt - is not a happy position to be in.

As Ayush advises, its better to wait and watch the situation carefully - rather than project with any confidence - both Sales & Margins can suffer. if you are seeing a situation deteriorating clearly, why would you want to stay put.

As Hitesh astutely mentions, you must be clear in your mind, manufacturing companies like BKT & GRP face cyclicality in demand, you must learn to ride them differently. It will be great to ride these companies when the demand situation revives.

At the moment, I would stay away but keep close track. If your's is a completely passive strategy - perhaps there are much better choices than BKT to stay put, however small the allocation.

Yes BKT has an advantage at the moment with the Rubber pricing situation. This can help neutralise some pressures - not sure for how long!

I am not confident of them holding margins. They have been capitalising the Interest & forex fluctuations on it so far. This will perhaps not be available beyond 3-6 months when Capex will be completed.

If demand does not revive for a year or more (which it can) there will be serious pressures due to unutilised capacity, higher fixed costs, higher depreciation and higher interest costs. And they might be forced to incentivise the distributors more and/or cut prices too. We must also remember BKT has higher realisations in FY13E (~230/kg) vs ~211/kg in FY12 due to the Forex effect. This might change, who knows.

A more prudent view is to scale down EBITDA margin expectations by a notch or two.

There is a ICICIdirect report on balkrishna and they have updated it after q3 results,the fy14 results project eps of 37 similar to your projections.However they have done a FY15 projection with utilization of new capacity and ebidta margins of 22%,projecting benign prices for natural rubber, and expected eps of 44 for FY15. The projection is that demand has hit the bottom and things are going to improve with geography shifting to US.They have given a TP of around 350 based on FY15 projections.The D/E is supposed to reduce to 1 by then.These seem to be optimistic projections.Maybe a pessimistic scenario also has to be thought if they would go into financial distress.

There is a ICICIdirect report on balkrishna and they have updated it after q3 results,the fy14 results project eps of 37 similar to your projections.However they have done a FY15 projection with utilization of new capacity and ebidta margins of 22%,projecting benign prices for natural rubber, and expected eps of 44 for FY15.

Hi Biju,

Everything boils down to the demand situation. If demand doesn't revive there are tough times ahead for the company.

As I said before, I would like to err on the conservative side, see actual demand revival in place before making any projections. Demand having bottomed out may be a far call from reality. The US market (reason for the reports optimism) has seen the biggest fall 43% sequentially this quarter.

Broker reports have vested interests to sell HOPE. The actual situation may even play out like they project, who knows. But I will start banking on something when I see a quarter or two of actual gains (not declines signalling bottoming out). We don't need to, do we.

Pls stop polluting all threads and spewing forth your random CNBC-ish BS global gyaan (There are other google groups you can join to partake in that kind of discussion). If you have any update on stock being discussed, do so, else leave it.

Donald/Admin: Vivek has been warned by other senior members in two or three other threads that I noticed. Not sure how many more. I guess he needs a final warning from admins. Some people don't understand unless they are bludgeoned with a banhammer club. Thanks.

He points out that for an overwhelming majority of Investment professionals the only thing that matters is to figure out ' what the market thinks' as opposed to building a well informed opinion of one's own.

He suggests that investors must adopt a sensible method of taking investment decisions by making simple reconciliation between the market price of a stock and its fundamental value. He goes on to add that any asset must be worth the higher of its fundamental value and its market price.

New BKT compound has 25% wear improvement

Following extensive field testing, Balkrishna Industries Ltd. (BKT) has developed its new Agrimax compound with cut and chip resistance that is improved by 25%.

The new compound was developed with an optimized polymer type/proportion, a more reinforcing carbon black type and with a more effective vulcanizing system, resulting in an improvement of 30% of the cut and chip compound engineering controlling factor compared to the previous compound.

Several Agrimax a70 and a85 series tires have been manufactured with the newly developed compound and extensive controlled tests have been conducted in the most severe markets, under the most severe service applications, proving the nonoccurrence of cut and chip, notes BKT, resulting in an overall wear improvement of +25%.

BKT field engineers conducted the market surveys in countries where BKT radial a70 and a85 series products are sold and used in severe service conditions. The company was then able to establish the level of cut and chip wear and identify the compound engineering controlling factors (physical property) governing the cut and chip phenomena.

The in-depth investigation has allowed BKT engineers to establish the minimum level required of the compound property in order to fully satisfy the most critical service conditions in terms of cut and chip non-occurrence.

The newly developed compound has been released for production on Jan. 1, 2013. For more on BKT visit the company's website.

PAT was at Rs 102 crore, (against Rs 73 crore) came higher, aided by higher other income Rs 17 crore vs. Rs 1.1 crore in Q1FY13. Other income has increased due to exchange fluctuation on sales and purchases.

Operating margins at 21.9% during the quarter was higher as raw material prices

continued to remain muted.

Raw material prices have remained muted. While natural rubber prices have decreased, carbon black and synthetic rubber did not show much change.

For the quarter ended June 13, other expenses have increased due to increase in advertising, promotional and marketing expenses.

Geography wise, revenue breakup was that Europe is around 51%, US was 17%, India was 11%, and the balance was rest of world.

OEMs accounted for 18% in Q1 FY 13-14 against 15% last year and replacement market currently is 77-78%.

Production during Q1 FY 13-14 stood at 35,191 MT as against 37, 900 MT in corresponding last quarter.

Natural rubber inventory stood at about two months. For Q1, international rubber prices were at ~$3000, which is currently $2500-2800/tonne.

For FY14, the management has maintained its previously given guidance of volumes of 145000-150000 MT, which would be ~70% utilisation

The management expects to meet its guidance as OEM penetration is likely to increase. An increase in focus on India and newer markets like Russia and CIS is likely to drive volumes.

BIL has taken a price cut in tandem with a decrease in raw material prices by 8-10%. The price cut is in-line with the industry pricing.

Euro has been hedged at 74-75 for FY14E. The management does not have any hedges for the $ as it has a natural hedge due to raw material imports.

The current order-book for the company stands at about two months, i.e. 22000-23000 MT.

After the complete ramp-up at Bhuj, BIL's capacity will be 276,000 MT at end of FY 15. At end of FY 14, it will be 236,000 MT. Bhuj's capacity is 120,000 MT. Last year the company did 15,000 MT from Bhuj.

The company has incurred Rs 1720 crore capex for Bhuj project till date.

For FY14, interest costs are expected at Rs 32-33 crore and at Rs 50-55 crore for FY15. The management expects depreciation of Rs 170 crore in FY14E and Rs 225 crore in FY15.

Demand recovery is being seen across many areas, and US is seeing strong recovery.

Thanks Hemant for the regular updates on BKT. We must keep tracking pedigree companies like BKT, GRP etc where we have an excellent overall understanding of the business/industry and we have faith in very competent Management.

We have a Mumbai trip coming up possibly end-Aug. Will try to meet BKT and get first hand update on some specifics - key monitorables, etc.

Any idea why BKT tyre volumes are falling in the last couple of quarters? I can understand sales falling, because of drops in raw material prices, but I cannot understand volumes falling, especially in the face of new capacities coming on line.

I am a little perplexed without more information, because on the face of it, Q2 results were not so great, but the stock has gone up smartly since the results.